Tuesday, May 17, 2011

“Others are flashing orange, like the US, and already require future sacrifices, most likely through a combination of higher inflation, austerity and, importantly, financial repression,” said El-Erian, who classifies financial repression as seeking to impose negative real rates of returns on savers.

This policy will undermine the real return contract offered to savers and, in El-Erian’s view, come instead of any bold moves to address structural problems and imbalances.

In other words, Pimco co-chair El-Erian is saying that the major flaws in the financial system will not be addressed, the government will keep on printing money, and that the inflation-adjusted return on investments for most Americans will be negative.

He is also saying that you should position your portfolio in things that counteract inflation and negative real rates of return. He is talking about things like gold and silver, etc. The gold and silver dollar value will continue to rise in such an environment.

Being retired, I have seen my fixed income from savings dwindle to close to zero, I see myself forced to either gamble, which I can't afford, or "bet" on gold and silver for example as Jean Luc Jean says above. I am debating what percentage of my current cash-holdings CAN SAFELY (best guess) go into Gold and Silver? My hunch tells me to do 70%, 45% gold and 25% silver.......as I am a bit more cautious vis-a-vis the volatility of silver.

Looking forward to feed-back and suggestions from those reflecting on this topic. THANKS.

It is great to make these kind of broad predictions and I believe Mr. El-Erian is correct. However it is more important to be flexible in your investment approach and let the trends tell you where to be at any given time. There may be periods of indecision, but trends always emerge and provide the guidance necessary to make educated investment/portfolio decisions. Follow the trends...don't guess!

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